sources of finance

Question 1

describe personal savings/invest more equity

Answer 1

Money invested into the business by the owner.

Question 2

outline 2 advantages of personal savings/ invest more equity

Answer 2

• The money does not have to be repaid.
• A fast way of obtaining cash for the business.

Question 3

outline 1 disadvantage of personal savings/ invest more equity

Answer 3

• Puts the owner at greater risk if the business fails.

Question 4

describe a bank loan

Answer 4

A sum of money borrowed from the bank which must be paid back monthly with interest over an agreed number of years

Question 5

outline 3 advantages of a bank loan

Answer 5

• Relatively simple to arrange.
• Repayments can be made monthly and spread over several years eg 3, 5, 7, 10 years
• You know exactly how much will be repaid each month and this will not change over time.

Question 6

outline 2 disadvantages of a bank loan

Answer 6

• The loan must be repaid monthly with interest over several years.
• If interest rates are high when the loan is arranged then this could be an expensive way to raise finance.

Question 7

describe a mortgage

Answer 7

A loan specifically for the purchase of property. It must be paid back monthly with interest.

Question 8

outline 3 advantages of a mortgage

Answer 8

• Repayments can be spread over a long period of time eg 25 years.
• A large amount of money can be obtained relatively quickly.
• No loss of control of the business.

Question 9

outline 2 disadvantages of a mortgage

Answer 9

• A mortgage must be repaid with interest.
• The amount repaid is far more than the amount borrowed in the first place.

Question 10

describe a grant

Answer 10

A sum of money received from the Local Council or the government which does not have to be paid back. You must apply for a grant.

Question 11

outline 2 advantages of a grant

Answer 11

• A grant does not have to be repaid.
• No interest payments have to be made on a grant.

Question 12

outline 3 disadvantages of a grant

Answer 12

• May be difficult to obtain.
• May take a long time to arrange.
• There may be restrictions as to what the money can be used for and certain requirements might have to be met.

Question 13

describe retained profits

Answer 13

Profits left over at the end of the year which are kept in the business.

Question 14

outline 2 advantages of retained profits

Answer 14

• Does not have to be repaid.
• No interest is payable.

Question 15

outline 1 disadvantage of retained profits

Answer 15

• Retained profits may not be enough finance
  therefore other sources are still needed.